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AUGUST 2011
Market Matters Table 1
Summary of major market developments
JULY HIGHLIGHTS
Market Returns* July YTD
 Major world equity markets experienced significant volatility
S&P/TSX Composite -2.7% -3.7%
marking the start of a period of considerable market unrest.
S&P500 -2.1% 2.8%
 Investor sentiment soured with uncertainty. Concerns over - in C$ -2.9% -1.2%
European sovereign debt early in the month were quickly MSCI EAFE -3.6% -5.2%
overshadowed by the U.S. debt problems, and early August - in C$ -2.5% -3.0%
economic news only heightened investor anxiety. MSCI Emerging Markets -1.3% -4.5%
 Bond markets fared well as investors took flight to the safety
and stability of fixed-income investments. DEX Bond Universe** 2.0% 4.3%
 Gold prices hit new highs in July (the upward trend continued BBB Corporate Index** 2.6% 5.1%
in August) as investors sought out the yellow-metal’s safe- *local currency (unless specified); price only
**total return, Canadian bonds
haven characteristics.
 Better than anticipated corporate earnings results provided
Table 2
some support to equity markets, but not enough to withstand
the broader negative macro-economic news. Other price levels/change
 The Bank of Canada continued to hold rates steady, now Level July YTD
decidedly more cautious about removing accommodative USD per CAD $1.0456 0.8% 4.0%
borrowing rates. Oil (West Texas)* $95.96 0.9% 5.1%
Gold* $1,623 7.5% 14.5%
Reuters/Jefferies CRB Index* $342.08 1.2% 2.8%
THE NAME OF THE GAME *U.S. dollars
Market volatility has been the name of the game this
summer as investor uncertainty grew concerning exactly Table 3
how (and if) the world’s largest economy would avoid Sector level results for the Canadian market
defaulting on their financial obligations. In fact, tracking S&P/TSX sector returns* July YTD
the equity markets through most of July looked a lot like S&P/TSX -2.7% -3.7%
a boot camp exercise drill: down 5, up 5, down 8, up 5,
down 10, etc… Then, in the last days of the month as the Energy -1.7% -3.4%
August 2nd debt ceiling deadline of loomed, investor Materials 1.6% -8.6%
sentiment and equity market results took a more Industrials -6.6% 2.5%
definitive negative turn. Consumer discretionary -6.6% -8.8%
Consumer staples -0.2% 3.7%
Tables 1 and 2 highlight the early stages of investors
Health care 4.3% 62.7%
trading off risk assets (equities and cyclical commodities)
Financials -5.6% -1.6%
in search of safety (bonds, U.S. Treasuries, and
defensive commodities like gold). Information technology -8.8% -36.9%
Telecom services -3.2% 7.0%
Utilities -0.3% -0.8%
CASTING A LONG SHADOW *price only
While currently overshadowed by macro-economic Source: Bloomberg, MSCI Barra, NB Financial, PC Bond, RBC Capital Markets
events, investors should keep in sight attractive market
fundamentals despite the fog of emotions. Companies historical levels. It appears in the near term; however,
are in the midst of reporting second quarter earnings, macro-economic concerns will override attractive market
and results are looking strong. For the S&P500 fundamentals in North America. As a result, we expect
companies that have reported so far, approximately continued unsettled market conditions as investors
three quarters of them have beat expectations. Financial digest the economic news that has affected market
results have been strong for both top-line and bottom- conditions so far this summer:
line growth. The combination of falling prices and rising  U.S. lawmakers struck a watered-down deal to raise
profits has driven stock valuations down to very the debt ceiling and avoid a potential default
attractive levels from earlier in the year and compared to situation. In doing so, they highlighted just how
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much heavy-lifting is yet to be done before the U.S. KEEPING COOL
finds itself on more stable fiscal economic ground. With investors focused on the very near future and in a
 U.S. manufacturing and consumer spending data skittish mood, it appears difficult to see what catalysts
provided further evidence that the U.S. economic will move the market higher. While this is true, a lot of
recovery is sluggish and still fragile. bad news is already priced in and, unless the news
 Eurozone sovereign debt problems remain continues to get worse, we expect sentiment (and equity
unresolved. Concern is growing among investors prices) to normalize over the coming months.
that the European Central Bank is not being Last year at this time we saw a similar crisis in
aggressive enough in backstopping the debt confidence. After a spike in fear, policymakers took
markets of countries such as Spain, Italy, Greece steps to reassure markets. The result was a strong
and Portugal. market rally. Since then, evidence has continued to
 Standard and Poor’s (S&P) announced they were accumulate that, while not robust and with many
downgrading the U.S. long-term government debt challenges, the U.S. economy continues to move
rating by one notch, from “AAA” to “AA+”. forward. And, we have to recognize that companies have
done a stellar job in managing through these conditions.
WHAT DOES THIS MEAN FOR MARKETS?
Investors are increasingly worried that the U.S. economy Keeping an eye on long-term fundamentals will prevent
is headed toward another recession and about the investors from knee-jerk reactions and their potential
possibility that Europe’s debt crisis might spread to damage. We have all seen the statistics showing that
larger economies. As a result, equity markets have investors tend to sell when they are scared (i.e. when
experienced general weakness and some days of sharp others are selling and prices are low) and buy after
pullbacks. Major stock markets erased year-to-date confidence is restored (i.e. when prices are high) hurting
gains as investors came to recognize that the U.S. debt their overall long-term returns.
deal was not a silver-bullet solution. At this point,
investor sentiment around these issues has been priced GOING FORWARD
into the markets, however it is not clear how much GLC Asset Management Group’s (GLC) portfolio
additional emotional risk aversion will develop and we managers and analysts are always monitoring factors
continue to expect significant market volatility going that affect the investment mandates they manage. This
forward. includes economic and market conditions to identify
opportunities that provide long-term investors with
We are less likely to see disruptions in bond markets. attractive risk-adjusted opportunities.
When investors are nervous, they tend to run to
government bonds. We have seen a decline in bond While market volatility may be taking top headlines now,
yields as a result. Ironically, even U.S. government debt in the longer term investors will benefit from renewed
(the debt that has just been downgraded) has seen its confidence as market fundamentals and corporate
price actually rise. This reflects a shortage of places for balance sheets take precedent over headlines and top-
U.S. government debt investors to go. The Canadian of-the-hour news reports. This plays right into the GLC’s
bond market has been a beneficiary (Canada is still strengths of professional active portfolio managers with
rated AAA), but realistically our bond market can only disciplined and process-driven investment styles.
sop up so much investment. In the end, large creditors
to the U.S. still have confidence in the U.S. and are As professional money managers, we know volatility can
expected to remain put. create significant opportunities and we remain ever-
watchful for any investment opportunities that may
emerge. Likewise market volatility can create
opportunities for investors who benefit from professional
Copyright GLC, You may not reproduce, distribute, or otherwise use any of this article without the prior written consent of GLC Asset Management Group
The views expressed in this commentary are those of GLC Asset Management Group Ltd. (GLC) as at the date of publication and are subject to
change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell
specific investments, nor is it intended to provide tax or legal advice. Prospective investors should review the offering documents relating to any
investment carefully before making an investment decision and should ask their advisor for advice based on their specific circumstances.
GLC Asset Management Group 2 of 2 August 2011
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3.
financial security advice and a diversified, long-term
investment plan.
Copyright GLC, You may not reproduce, distribute, or otherwise use any of this article without the prior written consent of GLC Asset Management Group
The views expressed in this commentary are those of GLC Asset Management Group Ltd. (GLC) as at the date of publication and are subject to
change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell
specific investments, nor is it intended to provide tax or legal advice. Prospective investors should review the offering documents relating to any
investment carefully before making an investment decision and should ask their advisor for advice based on their specific circumstances.
GLC Asset Management Group 3 of 2 August 2011
www.glc-amgroup.com